During your research, you might have found a good investment for you. Before you start trading with forex trading brokers online, it helps to know how to buy and sell securities like stocks and exchange-traded funds (ETFs).
Here, we explain some of the most important things you need to know about placing orders, such as the bid and ask prices for a stock and the three most common types of orders.
Price to bid and price to ask
In every market, there are two sides to every deal: the buyer and the seller. The buyer puts in a bid price, which is the most they are willing to pay for a security, and the seller puts in an ask price, which is the least they will take.
People who want to buy or sell shares also say how many they want to buy or sell. According to forexcanada.ca Canadian forex site, there is often a long list of buyers and sellers waiting for their orders to be filled at different prices.
The spread is the difference between the bid price and the ask price. Sometimes, the difference can be very big on the trading platform. Sometimes the difference is as small as a penny. In general, the spread is smaller when a security is more liquid. This means that it trades often and in large amounts.
The quantity is the number of shares being offered at the bid and ask prices. This information can be found in a detailed quote along with the bid and ask prices.
What you can find there:
The amount is written in regular groups. A board lot is a set number of shares that is based on two things: the price of the security and the exchange where it is traded. Most board lots with shares worth at least $1 have 100 shares. An “odd lot” is when you trade fewer shares than a “board lot”.
On the NYSE and NASDAQ, stocks with a price of at least $1.00 generally trade in board lots of 100. Stocks with a high dollar value may trade in smaller board sizes.
Let’s look at the most common types of orders and how they work.
1. Market order
When you place a market order to buy or sell a security, you don’t specify a price, and your order is usually filled right away at the best price. possible.
Here’s what I mean:
You buy 1,000 of the same type of stock. For 300 shares, $5 is the best price to ask for them. The best price to ask for 2,000 shares is $5.50. Your market order would first try to buy the 300 shares at $5 each. The remaining 700 shares of the order would be filled at $5.50. Your average cost would be $5.35, plus any commissions or fees that might apply.
If you place a market order during trading hours, it is likely to be filled quickly.
CONS: Prices can change a lot, especially for stocks with low trading volume. Even if the stock trades a lot, you might be surprised by the price you get. Prices can vary and change quickly at times.
If you want to buy or sell a stock that is trading a lot and has a small spread, the price difference is usually not that big. But if it is a security that isn’t traded much and has a big bid-ask spread, you may get a price to buy or sell that is very different from the last trade price and what you were expecting. Visit forex trading south africa for list of good stock brokers.
Keep in mind that if you put in an order after the market closes, it will probably be carried out when trading starts again the next business day. From one day to the next, a lot can happen, and when trading starts again, a stock may be much higher or lower than it was at the end of the day before.
2. Limit order
When you place a limit order to buy or sell a security, you must include the maximum price you are willing to pay (or the minimum price if you are selling) as well as the number of shares. Your order will be put into the system and will stay there until it is filled, cancelled, or the time limit runs out.
Here’s what I mean:
One share sells for $21. You put in a limit order to buy it at the price of $20. If the price keeps going up, your order might never be filled, and you might miss a chance to buy. But if the ask price drops to $20, your order will be partially or completely filled, depending on how many shares are available at that price. Your order could also be filled at a better price, since your limit order says how much you’re willing to pay for the stock at most. But if the stock falls below this level, you might get a better deal.
ADVANTAGE: You are in charge of how the execution goes. You can choose how long the order is good for. This gives you time to wait for the security to reach the limit price you set. On US exchanges, you can also say if the order is “all or part” or “all or nothing,” which tells the system if you are willing to let the order be partially filled. order if there aren’t enough outstanding shares to carry it out. Canadian exchanges, on the other hand, only let you order “all or part.”
CON: There’s no guarantee your order will be carried out.
Keep in mind that if a buyer or seller is willing to accept your price, your order will likely be filled at that price or a better one. But the first-come, first-served rule applies to limit orders. If other investors have put in orders at the same limit price before you, you might miss out!